Equinix (EQIX) Closes $1.5B Credit Facility; Shares Gain - Analyst Blog

Global data center service provider Equinix Inc. (EQIX) declared the completion of its $1.5 billion senior secured credit facility. The company will use the proceeds from the facility to refinance its existing senior secured credit facility and other strategic initiatives.

The shares of the global data center service provider gained over 1% since the announcement finally closing at $228.2 on Dec 18.

Equinix filed for the registration with 11 financial institutions. Merrill Lynch, a subsidiary of Bank of America Corp. (BAC), J. P. Morgan Securities LLC and TD Securities (USA) LLC were the joint book-running managers for the credit facility.  

The facility will be issued in two parts — $1.0 billion will be as senior secured revolving credit and the rest ($500 million) will be as senior secured term loan. Equinix intends to utilize the proceeds from the revolving loans for its working capital and to meet other general corporate purposes such as acquisitions, dividend payouts, stock repurchases and repayment of additional debt. The loan amount could also be used to finance acquisitions and fulfill other permitted purposes.

Apart from this, the company believes that the funds will improve its liquidity position enabling it to invest in growth opportunities.

Quarter Details

At the end of the third quarter of fiscal 2014, total debt outstanding (including capital lease obligations, total loans payable, senior notes and total convertible debt principal) of the company stood at $3.98 billion, up from $2.80 billion in the previous quarter.

On the other hand, Equinix exited the quarter with $485 million in cash and cash equivalents, compared with $704.3 million in the last quarter. The company generated cash from operating activities of $216.4 million compared with $98.9 million in the earlier quarter.

The company delivered mixed third-quarter results, but issued encouraging guidance. We believe that further growth in the client base and strategic acquisitions will enhance its revenue potential and expand its geographic reach.

Recent Activities

Equinix recently announced the distribution of $416.0 million ($7.57 per share) to shareholders related to its proposed Real Estate Investment Trust (REIT) conversion.

We believe that Equinix's decision to register itself as an REIT company will prove beneficial. The tax benefit achieved from the REIT status will allow it to distribute a significant portion of its profit as dividends, thereby boosting shareholder value. Thus, Equinix would be a prudent investment option for investors seeking higher dividend yield.

Conclusion

We are optimistic about the company's recurring revenue model and current expansion plans. Nevertheless, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) keep us cautious. European exposure and industry consolidation remain the headwinds. Additionally, the company's highly leveraged balance sheet is a concern.

Currently, Equinix carries a Zacks Rank #3 (Hold).